1. Using Vouchers to Develop Business Development Service Markets for Kenya ’ s Micro & Small Enterprises Presentation to CWSA Workshop by William F. Steel Senior Adviser, Private Sector Africa Region, World Bank 28 January 2003

2. W. Steel: BDS Markets2 Why Business Development Services (BDS) for MSEs? MSEs play an important role in: Poverty reduction and economic growth by generating employment and incomes Empowerment of low-income workers Development of entrepreneurship & skills BDS can raise MSE productivity by addressing key constraints: Low skill levels Weak management, financial accounts, marketing Low level of technology Weak linkages and support systems

3. W. Steel: BDS Markets3 Shortcomings of Previous Approach to MSE Assistance Old Supply-driven approach: Intervene with services provided or contracted directly by donor project or government agency Train x number of people in z years Shortcomings: Potential private providers are crowded out Services not adapted to real needs of clients No sustainability when subsidies run out

4. W. Steel: BDS Markets4 Rationale for New Approach to Developing BDS Markets Vision: Diverse services adapted to meet demands of large share of MSEs affordably Under market development approach: Increased demand & willingness to pay Providers have to adapt methods & content to targeted clients Sustained & expanding provision of services

5. W. Steel: BDS Markets5 Old Supply-driven Approach Provider looks to government/donor Government/ Donor BDS providers (public agency; donor program) $$$ Beneficiaries Most private providers left out Private BDS providers

6. W. Steel: BDS Markets6 New Demand-led Approach Provider has to market to clients Government/ Donor Training providers $$$ Clients (MSEs) $$$

7. W. Steel: BDS Markets7 New Demand-led Approach Facilitation of both demand and supply Gov ’ t/ Donor Training providers $$$ Clients (MSEs) Facil- itator Funds Subsidy (voucher) Upgrading Information

8. W. Steel: BDS Markets8 Some Examples of BDS TrainingTechnologies InformationConsultancy AdviceCommunications LinkagesNetworking

9. W. Steel: BDS Markets9 Why Demand-driven Approach? Supplying pre-determined packages of services doesn ’ t work well because: MSEs vary widely in capabilities and what business services can benefit them Needs assessment cannot fully capture what will work for which MSEs, nor anticipate changes in market Each MSE may want different combination of BDS

10. W. Steel: BDS Markets10 Why Vouchers? Demand-driven Trainee chooses and pays with voucher Encourages private sector to respond Fills information gap Directory of providers and services Incentives Reduces cost to clients Reduces risks and raises profits to providers Transparent way of delivering subsidy to jump-start market development

11. W. Steel: BDS Markets11 Drawbacks of Vouchers Complex, costly to set up Can distort true market by subsidizing the transactions Subsidies can become addictive, hard to phase out

12. W. Steel: BDS Markets12 Kenya Voucher Program Started just for training delivery: Upgrade skills & productivity in existing micro & small enterprises (MSEs) Give women technical skills to start up Shifted to market development approach Introduced upgrading for training providers (vouchers for training of trainers) Extended to other, more individualized BDS aimed at SMEs (small & medium-scale enterprises)

13. W. Steel: BDS Markets13 Training, Technology/BDS, & Microfinance Vouchers: Micro & Small Market Segments STANDARDIZED TRAINING Training Institutions Skilled Craftworkers Consulting Firms TECHNICAL ASSISTANCE & SPECIALIZED TRAINING Technology institutions Large firms BUSINESS DEVELOPMENT SERVICES Consulting firms Service providers FINANCIAL SUPPORT INSTITUTIONS Microfinance Inst’ns Coop & other banks Basic technical skills Entrepreneurship & management skills Access external funds Specialised technical skills Product improvement Problem-solving Business planning & development Voucher Training Programme Technology & BDS Voucher Programme MicroFinance Voucher Training Programme Mobilize & manage own savings/credit Self- empl oyed Micro Small Jua Kali Assoc. SACCOs

14. W. Steel: BDS Markets14 Implemented Mainly through Private & Non-gov ’ t Agencies

15. W. Steel: BDS Markets15 Kenya Voucher Programme: Performance 1997-2001 37,606 training vouchers issued, about 32,606 trained (60% women) BDS to 608 clients; microfinance to 65 US$8.7m disbursed ($2m being processed) Impaired by frequent changes of Ministry & “ Permanent ” Secretary (6 in 4 years) Retarded by slow, delayed flow of budgeted funds Severe delays paying service providers Trainers won ’ t offer new courses (in programme) till paid for previous ones

16. W. Steel: BDS Markets16 Demand Response, 1997-2001 BAFs issued Applica- tions received Vouchers issued Training/ services provided Training programme 85,83565,00037,60633,025 Technology / BDS programme 4,000 * 2,7441,3241,268 * *Subject to final verification

17. W. Steel: BDS Markets17 Supply Response, 1997-2001 Allocating Agencies # Applicants # Selected - Training VP1007212 - Technology/BDS40077 Service Providers - Training3400745 - Technology/BDS1200306

18. W. Steel: BDS Markets18 Kenya Voucher Programme: Impact Very positive for those trained Significant increases in employment, assets and income for enterprises Increased willingness to pay cash directly to providers for subsequent training (40% have done so)

19. W. Steel: BDS Markets19 Kenya Voucher Programme: Unanticipated Benefits Skilled craftworkers emerged as leading training providers (TPs): Most-demanded by voucher clients Adapted apprenticeship system to a more convenient format Some have added training as a business line Formed Assoc. of Tech. Transfer & Enterprise Jua Kali Associations empowered Provide members with useful information & vouchers Many have formed SACCOs to help address financing needs from own resources

20. W. Steel: BDS Markets20 Lessons Learned Administer in private sector, not through Government Ministry Provide training-of-trainers and other support to upgrade TPs, especially those from SME sector Market development works, but takes time Demonstration effect: Clients willing to pay for further training (=> need to reduce subsidies) Need exit strategy: Providers may become oriented toward vouchers rather than developing better products for mass market Slow payment in Kenya forced TPs to cater more to the market, not subsidies